ii view: Kingfisher - from Covid tailwind to economic headwind

A slump in share price means this DIY chain offers a dividend yield in excess of 5%. Buy, sell, or hold?

First-half results to 31 July

• Revenue down 4.1% to £6.8 billion
• Third quarter like-for-like sales to 17 September down 0.7%
• Adjusted pre-tax profit down 30% to £472 million
• Interim dividend unchanged at 3.8p per share
• Ongoing £300 million share buyback programme
• Net debt of £1.85 billion, up from £908 million

Guidance: 

• Continues to expect full-year adjusted pre-tax profit of £770 million 

Chief executive Thierry Garnier said:

"Looking to the months ahead, although trading in the year to date has been in line with our expectations, we remain vigilant against the more uncertain economic outlook for the second half. We are therefore focussed on delivering value to our customers at a time when they need it most. You can expect continued strong execution, with a focus on growing sales and market share, effective management of our gross margin, and alignment of our costs and inventories to market conditions.

ii round-up:

Kingfisher (LSE:KGF) is a multi-format home improvement retailer with over 1,500 outlets. 

It trades from eight European countries including the UK and Ireland, France and Poland and employs over 60,000 people. 

Group brands include B&Q, Castorama, Brico Dépôt, Screwfix, TradePoint and Koçtaş. 

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For a round-up of these latest results announced on 20 September, please click here.

ii view:

Founded in 1982, today this FTSE 100 index constituent generates annual sales of over £13 billion. The UK and Ireland account for its biggest slug of sales at just under a half. That’s followed by France at just over a third, Poland at just over a tenth and other European nations the balance. 

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Under its former Carrefour chief executive, strategic priorities include extending its range of Own Exclusive Brands (OEB), downsizing bigger stores, and opening new compact stores, and increasing its trade focused sales via growth in its Screwfix and Tradepoint outlets. New Screwfix stores in France are being opened. 

For investors, an uncertain economic outlook and a cost-of-living crisis cannot be ignored. Rising interest rates and their potential to slow housing and construction related activity also warrant consideration, as does the weaker pound and its impact on buying products from overseas. The dividend payment has been left unchanged, while competition from the likes of Toolstation owner Travis Perkins (LSE:TPK) and Wickes Group (LSE:WIX) should not be forgotten.  

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On the upside, a broad improvement programme remains ongoing, with success arguably reflected in a near 17% improvement in like-for-like sales over the last three years. Market share gains are being made, ecommerce sales now account for 16% of overall company sales compared to around 7% prior to the pandemic, while supply chain challenges are being managed and a focus on costs ongoing. 

On balance, and while a historic and forecast future dividend yield of over 5% gives reason for patience, exposure to both the retail and the housing markets leaves the risk/reward ratio finely balanced.  

Positives: 

• Diversity of geographical locations and brand names
• Attractive dividend yield (not guaranteed)

Negatives:

• Uncertain economic outlook
• The weather can impact performance

The average rating of stock market analysts:

Hold